Question

3- ApplyWk3 uz (Que Mon The following are the cash flows of two independent projects 11 Year Protect a (280) Project B (20) 180 a. If the opportunity cost of capital is 10%, calculate the NPV for both projects. (Do not round Intermediate cale answers to 2 decimal places.) NPV Project Pepeda Project B

Answer 1

The Net Present Value (NPV) of Project-A

Year	Annual cash flows ($)	Present Value Factor (PVF) at 10.00%	Present Value of annual cash flows ($) [Annual cash flow x PVF]
1	160	0.909091	145.45
2	160	0.826446	132.23
3	160	0.751315	120.21
4	160	0.683013	109.28
TOTAL		507.18

Net Present Value (NPV) of the Project = Present value of annual cash inflows – Initial investment costs

= $507.18 - $280

= $227.18

The Net Present Value (NPV) of Project-B

Year	Annual cash flows ($)	Present Value Factor (PVF) at 10.00%	Present Value of annual cash flows ($) [Annual cash flow x PVF]
1	180	0.909091	163.64
2	180	0.826446	148.76
3	180	0.751315	135.24
TOTAL		447.63

Net Present Value (NPV) of the Project = Present value of annual cash inflows – Initial investment costs

= $447.63 - $280

= $167.63

DECISION

The “PROJECT-A” should be accepted, since it has the highest Positive NPV of $227.18.

NOTE

The formula for calculating the Present Value Inflow Factor (PVIF) is [1 / (1 + r)n], where “r” is the Discount Rate/Cost of capital and “n” is the number of years.